Most lenders (including the big four banks) will accept a minimum deposit of 5% of the property’s value, if you pay lender’s mortgage insurance (LMI). In practical terms, you would only need a minimum deposit of $30,000 to buy a $600,000 home and borrow $570,000 from the bank. Your house deposit covers 5% of the price of the property you want to buy, while the home loan covers the rest.
You can avoid LMI if you apply through the Home Guarantee Scheme (HGS) with a participating lender or with the help of a guarantor.
A 5% deposit would give you a home loan with a loan-to-value ratio (LVR) of 95% (with LMI added into the loan), also known as a low-deposit home loan. Some lenders may require a minimum 10% deposit with LMI. You’ll need a strong application for this type of loan, which means having a good credit score, a steady income and solid employment history.
You generally need a deposit of at least 20% of the property’s value to avoid LMI, or put another way a maximum LVR of 80%. Normally, lenders consider loans with an LVR over 80% of the property value to be a higher risk.
There are alternative routes to buying a home, such as rent-to-own homes, which require a smaller up-front amount, but this can end up being a more expensive option for the buyer in the long run due to fees charged.
